Canadian shareholders engage with U.S.-style proxy access

A Brave New World, or Much Ado About Nothing?

Securities and Corporate Finance Alert

Shareholders of the Toronto-Dominion Bank (“TD Bank”) and the Royal Bank of
Canada (“RBC”) voted in the last few weeks on shareholder proposals made to confer
additional proxy access rights to shareholders in the nomination of directors to the
respective boards of the banks. TD Bank shareholders voted in favour of the proposal;
RBC shareholders voted against the proposal.

Some Canadian observers gushed over “history being made”, shareholders “drawing
first blood”, and the “floodgates” being opened to further proposals. And to a degree,
it is true that these are notable developments in Canada.

But Canada has had statutory “proxy access” rights for decades, and they have rarely,
if ever, been used. Moreover, the shareholder proposals made at TD Bank and RBC,
even if adopted into a bylaw, would make little difference in reality, given the market
caps of these banks. To take the RBC example, it would have lowered the shareholding
threshold to nominate directors from $7.2 billion to $4.3 billion. Shareholders holding
$4.3 billion in stock who seriously want to replace the board are unlikely to seek to
replace the board with a 500-word addition to a management information circular:
they will have a true proxy contest with a dissident circular.

While it is entirely likely that more shareholder proposals for proxy access will emerge
in the 2017 and 2018 proxy seasons (it is relatively easy and inexpensive to make such
a proposal) and while many of those proposals are likely to pass, there is good reason
to doubt that this U.S.-style proxy access is likely to make any material difference in
how directors are elected in Canada.